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Bad Policies for the Cash Poor

Bad Policies for the Cash Poor

I'm going through the process of submitting expenses to my dependent care FSA, and this is just another great example of a benefit for parent's that not accessible to the poor.

Here's how the program works: if your employer offers a dependent care FSA, you can contribute pre-tax dollars into it out of your paychecks. As you spend money on care, you can submit receipts, and get paid back out.

So you need to :

  1. Set money aside out of your paycheck
  2. Pay up front for daycare
  3. Submit paperwork
  4. Get the money from part 1 back

Looked at this way, it's pretty clear that this benefit for parents is only possible for people who can afford for set aside money from their paychecks AND pay for daycare. If you can't "double pay" up front, you can't get the tax benefit. On top of that, the benefit is worth most to the people with the highest marginal taxes. And lastly, it's yet another paper work burden, which contributes to "time poverty". Great example of well meaning, poorly designed policy that should help everyone, but is subtly biased to only help the wealthy enough.